Despite a relatively strong start to the year for many electric vehicle (EV) stocks, Rivian (NASDAQ:RIVN) hasn’t seen much love. Today’s price action is leading RIVN stock more than 8% lower. This now has shares in negative territory on a year-to-date (YTD) basis. Clearly, some investors are concerned.
That said, today’s hit appears to be more concerning for bulls on early-stage EV producer Rivian. The reason behind the drop? Tesla (NASDAQ:TSLA) just announced massive price cuts in the U.S. and Europe, following similar moves in the Chinese market. While these incentives may certainly boost sales, it’s clear that margins are about to take a hit in the EV sector. Additionally, concerns are now building around a potential demand problem.
Let’s dive into what exactly Tesla announced — and why this is big news for Rivian as well.
Why Is RIVN Stock Falling Today?
Rivian and Tesla are certainly two independent EV companies. As such, one might reasonably ask the question why problems at one may become issues for the other. Indeed, Rivian’s decline far outpaces that of Tesla’s in today’s session.
Well, demand problems materializing for Tesla could be a much bigger deal for Rivian at this stage in its life cycle. Tesla is already an established brand with significant U.S. market share. On the other hand, Rivian is just starting out. Accordingly, if price cuts are necessary for Tesla, Rivian will likely be forced to follow through with even bigger cuts, given the higher price points of its EV trucks.
Additionally, concerns about Rivian’s existing order backlog have persisted for some time. If demand slows further and the economy cools as anticipated, a perfect (terrible) storm for Rivian and RIVN stock could be brewing right now.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
